Pensions Simplification
With effect from 6th April 2006 (A day) there has been a major change in pensions legislation many of the existing rules will be swept away.
Post A day contributions - Overall Lifetime Limit initially £1.5 Million, Annual allowance £215,000 per annum for company, 100% earnings for employee. No annual limit in year of retirement.
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Self-investment in own company shares limited to 5% for company sponsored scheme up to 100% if no company link.
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Loans to employer for company sponsored schemes only limited to 50% fund and must be secured.
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Death benefits-the new regime will allow tax-free lump sum death benefits up to the lifetime cap and taxable benefits above.
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Current Investment restrictions were supposed to be removed allowing virtually anything to be held within a pension fund e.g. Residential Property, Antiques, Unquoted shares. The Chancellor however changed his mind and Residential Property, Antiques, Art etc can now only be help in commercially run investment funds.
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Annuity purchase- there is no proposed requirement to buy an annuity. Up to 75 drawdown from fund allowed. At age 75 apart from an annuity the other option is Alternatively Secured Pension (ASP), which is a form of drawdown but with lower maximum income than the current version and no lump sum death benefits post age 75 although unused funds may transfer to another pension plan i.e. unused funds may be transferred to SIPP arrangements for your chosen beneficiaries. Inheritance tax will apply to such transfers.
For borrowing to buy property however there is a major unwelcome change as the borrowing limit will be 50% of the fund. For example if you have £100,000 pension fund at present you can borrow via a SIPP and purchase a £400,000 property. Post 6th April 2004 you can only borrow 50% fund i.e. £50,000 so you can only buy a property worth £150,000!
Contact Central Tax & Trustee Planning LLP for further information
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